Indian banks are increasingly prioritising cybersecurity spending over physical expansion as AI-driven cyber threats become more sophisticated and frequent, according to industry reports, regulatory discussions and bank disclosures.

A new Digital Threat Report 2025–26 for the banking, financial services and insurance (BFSI) sector said six of the seven emerging cyber threats identified a year ago have already become operational, with attacks increasingly using artificial intelligence, stolen identities and manipulated payment workflows to mimic legitimate customer behaviour.

The development is prompting lenders to accelerate investments in cyber defence, AI-based threat detection, micro-segmentation and zero-trust architecture.

The shift is also visible in bank budgets. Punjab National Bank has earmarked about 20% of its technology budget, roughly Rs 7–8 billion, for cybersecurity in FY27, a more than 50% increase from the previous year, and has indicated that spending could rise further if needed.

Experts said cybersecurity is increasingly being treated as a core operating necessity rather than a discretionary technology expense, especially as lenders expand digital lending, UPI-based payments, cloud infrastructure and AI deployments.

RBI sharpens AI focus

The Reserve Bank of India has also sharpened its focus on the issue. Ir recently discussed AI, geopolitical risks and ECL implementation with bank chief executives, while the central bank has circulated a draft framework on AI governance for regulated entities.

Industry estimates suggest the global BFSI cybersecurity market could grow at a double-digit pace through 2030 as banks contend with operational resilience requirements, third-party technology risks and a shortage of specialised cyber talent.

The spending pivot comes even as traditional branch expansion slows across much of the industry. Large banks have added branches selectively in recent years, but technology budgets are increasingly being directed toward cyber monitoring, identity management, fraud analytics, cloud security and continuous vulnerability assessment, according to executives and consultants.

RBI’s latest Financial Stability Report underscored the growing importance of cyber resilience, identifying AI-driven cyber threats as a key risk for the financial system even as banks remain well capitalised and gross NPAs stay below 2% under the baseline scenario through 2028.

For the banking industry, the question is no longer whether cyber spending will rise, but how quickly cybersecurity becomes one of the largest recurring investments in the operating budget as lenders prepare for an era of AI-enabled financial crime.

Join the community of 2M+ industry professionals.

Subscribe to Newsletter to get latest insights & analysis in your inbox.

All about ETCISO industry right on your smartphone!